The $8k that the company owes to a consultant is likely to be way down on the list of things that suck that the founders of a failing startup are likely to be dealing with. On top of that, the unpaid consultant is in NY and the dispute resolution must take place in SF per the contract as described. If they were all in the same city, then the overhead of small claims is less. But the options for the consultant are flying cross country or hiring a local lawyer. That's good money after bad when pursuing actions against a corporation that has gone bust when the amount is a few thousand dollars.